Pari Passu Wipeout in the Southern District posted by Anna Gelpern Christmas came early to Elliottville.

Pari Passu Wipeout in the Southern District

posted by Anna Gelpern

Christmas came early to Elliottville. Judge Griesa issued an amended order and two opinions that shoo away just about all the arguments that Argentina, the exchange bondholders, the various intermediaries and fellow travelers tried to fling in the way of his injunction. (A reasonably current set of briefs and rulings is available here.) The Southern District Thanksgiving turkey is here Download Argentina.NMLPariPassuGriesaOrderAmended112112, along with the fixings hereDownload Argentina.NMLPariPassuGriesaOpinion112112 and here Download Argentina.NMLPariPassuGriesaOpinionStay112112. First thoughts after the jump.

• The formula is just what the plaintiffs asked for: if the exchange bondholders get a full coupon payment, the holdouts get full accelerated principal and interest ($1.3bn). Anything else would have no basis "in contract or in policy." (Alas for the equitable creativity hopefuls out there.)
  • ... Except that the court's steadfast refusal to make it up out of thin air comes alongside this: "[W]hat is being done here is not literally to carry out the Pari Passu Clause, as would be done in a normal commercial situation, but to provide a remedy for Argentina’s violation of the Clause." In other words, we are making it up as we stand firmly against making it up.
• BoNY as trustee, DTC, Cede, and the exchange bondholders are "in active concert and participation," ie, fair game. In theory, so is Euroclear, except that it is shielded from injunctions by Belgian legislation in Belgium.
  • The opinion specifically names "the clearing system" as a potential collaborator.
  • The court dismisses the possibility that payment might be accomplished in Argentina, and observes that BoNY is "surely a United States entity" whatever it is or does in Buenos Aires. 
• Trash talking ("inflammatory declarations" and "threats of defiance") by Argentine politicians about holdouts violates the injunction. Per se.  Said trash talking amounts to "extraordinary circumstances of the most serious nature" that warrant an early lifting of the stay.
• Therefore, the stay is lifted in time for the December 15th payment to be shared.

Bottom line: the Judge feels empowered by the Second Circuit, and has thrown caution to the winds. He comes across as a man who has finally gotten his hands on Al Capone. He is not letting go.

Collateral damage TBD. The heretofore half-hearted policy interventions on Argentina's behalf signal that the establishment is not all in. It would be interesting to see whether Judge Griesa's expansive opinion gets anyone off the fence, and whether muscular policy intervention now would be too little and too late. It is almost as if he is testing the limits of all around him -- oddly reminiscent of the Argentine leadership on the other side. 

I am skeptical that the Second Circuit or the Supreme Court would want to mess with this unless the officialdom puts up a giant stink. And the officialdom may have decided that the courts are not the place to fight this battle (see Euroclear law).

One thing for sure -- Argentina has long been the least of it. Even if it settles now, the smoke will take ages to clear.

November 21, 2012 at 11:56 PM in Sovereign Debt